China Development Bank provides a $3.3 billion USD term loan to facilitate Qingdao Haier’s acquisition of GE Appliances unit from General Electric (Linked to Record ID#106912)

Project narrative

On January 14, 2016, Qingdao Haier Co., Ltd. — a Chinese home appliances and consumer electronics manufacturer listed on the Shanghai Stock Exchange that includes major shareholders in Haier Group Corporation, a Qingdao, China state-owned home appliances and consumer electronics company (41% stake), and American private equity firm KKR & Co. Inc. (9.8% stake) — entered into an equity and asset purchase agreement with General Electric Company (GE) to acquire GE Appliances, the home appliance business of GE, for a cash consideration of $5.4 billion USD. Qingdao Haier won a competitive auction to purchase GE Appliances that came after GE's previous agreement to sell GE Appliances to Swedish home appliances manufacturer Electrolux for $3.3 billion USD was blocked because of U.S. regulators' concerns that a merger with Electrolux would create a monopoly in kitchen appliances. At the time of the acquisition, GE Appliances was the leading home appliances company in North America, with 125-year history and a product line including refrigerators, washing machines, cooking stoves, dishwashers, dryers, and air conditioners. It was headquartered in Louisville, Kentucky and had 12,000 employees globally (95% in the United States), nine manufacturing plants across five American states (including one in Louisville, Kentucky), logistics and distributions assets and capabilities, and strong customer relationships in both retail and contract spheres. In 2014, GE Appliances had approximately $5.9 billion USD in revenue and $0.4 billion USD in earnings before interest, taxes, depreciation, and amortization (EBITDA). It held almost 14% of the American market share (compared to Haier's 1.1% share). In addition to GE Appliances itself, the acquisition included its 48.4% stake in Mabe, a Mexican appliance joint venture, assets in Canada, 358 trademarks such as Adora, Brillian, Hotpoint, Monogram, Calrod, and zoneline, and a 20-year license to market the current portfolio of GE brands (with two 10-year extensions). As part of the acquisition, GE Appliances would be operated independently and remain headquartered in Louisville, Kentucky and operated by a board of the current senior management of GE Appliances, Hair, and two independent directors. The acquisition was expected to help expand Haier's presence in the United States and Western Hemisphere. For GE Appliances, it was expected that it would benefit from further investment and opportunities for the GE brand in China. Both businesses were expected to benefit from synergy from complementary assets, consumers, and suppliers held by the other. The acquisition was expected to promote the development of China's home appliances and electronic information industries. Some observers raised concerns about the high price paid by Qingdao Haier. The acquisition was subject to customary regulatory filings in China and customary anti-trust clearances in relevant countries and to approval by two-thirds of Qingdao Haier shareholders present to vote (Haier and KKR, together owning 50.8%, were supportive of the transaction). The acquisition was approved by the board of directors by both GE and Haier as of the definitive signing date. The acquisition was expected to close in mid-2016. On December 18, 2015, the Qingdao Branch of China Development Bank Corporation (CDB) issued a letter of intent for the provision of a loan to Qingdao Haier to help it enter the second round of bidding for GE Appliances. The second round of bidding required that bidders provide irrevocable loan performance documents to support their bids. Thus, on January 13, 2016, CDB issued a formal loan commitment letter to Qingdao Haier to support the acquisition, helping it win the bidding: the face value would be the lower of $3.3 billion USD or 60% of the consideration ($3.24 billion USD of $5.4 billion USD at this time), a maturity period of five years from the date of first loan withdrawal, and a repayment guarantee. On March 14, 2016, the board of directors unanimously approved the conditions of the CDB loan, which was changed as such Haier US Appliance Solutions Inc. — a Delaware-incorporated special purpose vehicle that is legally incorporated in the U.S. and a wholly owned subsidiary of Qingdao Haier — became the borrower, while Qingdao Haier and Haier Group Corporation became the guarantors, providing full joint and several liability guarantee for the acquisition loan and and other forms of guarantee agreed upon by both parties and in accordance with the requirements of the lender. The loan also carried an interest rate of no more than 3.4%. Record ID#106911 captures the CDB's loan. Alongside CDB, China Construction Bank Corporation (CCB) and Bank of America Merrill Lynch (BAML) also issued commitments to provide a loan to Qingdao Haier for its acquisition of GE Appliances, altogether worth $3.3 billion USD (unclear if three separate bilateral facilities or syndicated). However, by February 5, 2016, CDB had become the sole provider of an irrevocable letter of commitment for a $3.3 billion USD loan to Qingdao Haier; BAML and CCB's commitments had been cancelled. Record ID#106912 captures CCB's cancelled commitment. CDB remitted the loan to Haier US Appliance Solutions for $3.3 billion USD on June 3, 2016. The CDB represented about 60% of the transaction costs (the other 40% being paid for by Qingdao Haier's cash reserves. On March 2, 2016, the U.S. Department of Justice approved the acquisition. The consideration was raised from $5.4 billion USD to $5.58 billion USD due to adjustments, namely working capital adjustment, an equity adjustment, and transaction taxes and fees. The acquisition was completed on June 6, 2016.